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-BOE FPC: Spreads Narrow On High LTV Mortgages; Below Pre-Crisis Levels
By David Robinson
LONDON (MNI) - The Bank of England Financial Policy Committee
debated the case for raising the countercyclical capital buffer (CCyB)
at its 12 March meeting, with arguments over whether to tighten
immediately or wait until June, the minutes revealed.
Raising the CCyB would be de facto tightening of policy, aiming to
strengthen bank capital in relatively benign times to protect against
risks ahead. The CCyB is currently at 1% but the minutes said that
arguments were advanced for raising it immediately.
The minutes said that financial stability risks had increased since
the CCyB was set at 1% and that policy should be forward looking.
"Waiting for a more marked evolution in domestic risks before
acting could result in a need to consider sharper adjustments to the UK
CCyB rate, which would likely carry larger economic costs," the minutes
In the end the FPC delayed raising the CCyB and said that risks in
specific areas could be tackled through more targeted action and there
were benefits in waiting and seeing how things evolved in coming months.
It stated it would review the level of the CCyB in June.
On mortgages the FPC noted that there had been a gradual loosening
in credit and that there had been a tightening in spreads between the
high loan-to-value (LTV) and lower LTV mortgages. The spread between 90%
LTV and 75% LTV mortgages had narrowed 34 basis points since the start
The FPC noted, however, that the volume of very high LTV ratio
mortgages remained below pre-crisis levels with relatively weak
aggregate demand for mortgages.